Background: Configuring high quality care for the rapidly increasing number of people with type 2 diabetes (T2D) is a major challenge worldwide for both providers and commissioners. In the UK, about two thirds of people with T2D are managed entirely in primary care, with wide variation in management strategies and achievement of targets. Pay for performance, introduced in 2004, initially resulted in improvements but disparities exist in ethnic minorities and the improvements are levelling off. Community based, intermediate care clinics for diabetes (ICCDs) were considered one solution and are functioning across the UK. However, there is no randomised trial evidence for the effectiveness of such clinics. Trial Design, Methods and Findings: This is a cluster-randomised trial, involving 3 primary care trusts, with 49 general practices randomised to usual care (n = 25) or intervention (ICCDs; n = 24). All eligible adult patients with T2D were invited; 1997 were recruited and 1280 followed-up after 18-months intervention. Primary outcome: achievement of all three of the NICE targets [(HbA1c≤7.0%/53 mmol/mol; Blood Pressure <140/80 mmHg; cholesterol <154 mg/dl (4 mmol/l)]. Primary outcome was achieved in 14.3% in the intervention arm vs. 9.3% in the control arm (p = 0.059 after adjustment for covariates). The odds ratio (95% CI) for achieving primary outcome in the intervention group was 1.56 (0.98, 2.49). Primary care and community clinic costs were significantly higher in the intervention group, but there were no significant differences in hospital costs or overall healthcare costs. An incremental cost-effectiveness ratio (ICER) of +£7,778 per QALY gained, indicated ICCD was marginally more expensive at producing health gain. Conclusions: Intermediate care clinics can contribute to improving target achievement in patients with diabetes. Further work is needed to investigate the optimal scale and organisational structure of ICCD services and whether, over time, their role may change as skill levels in primary care increase. Trial Registration: ClinicalTrials.gov NCT00945204; National Research Register (NRR) M0014178167.